Europe overturned the convention of history when, unlike the U.S. or Germany before it, it created monetary union before political union. Now it is paying the price.

The euro crisis is a story of a breakdown in the mechanisms meant to manage national relations within the currency union. Its future hangs on how—and whether—these broken mechanisms can be refashioned.

In a speech to a conference in Munich last week, the Princeton University historian Harold James suggested that one of the central questions is how the 17-nation currency bloc handles its excessive debts.

History shows, he said, that debt can be political poison or what Alexander Hamilton styled as "the strong cement of the union." Either outcome, he suggested, is possible for the euro zone.

The British-born professor offered a tale of two revolutions: Britain's so-called Glorious Revolution of 1688 and the French Revolution of 1789. The first was peaceful and wealth-enhancing, the second violent and destructive, leaving French society poorer than Britain's for more than a century.

What distinguished these two efforts to rein in autocratic dynasties was how they dealt with debt. Britain's revolt against the Stuarts brought with it a new approach: Budgets were voted in Parliament, an institution that represented the people, who thereby identified themselves as liable for the obligations incurred by their government. The people who voted the taxes in Parliament were also holders of debt.

It took the 18th century to cement the principle in the face of what Mr. James calls Britain's "costly addiction to Great Power politics." But this approach limited the scope for spending on lavish court life and constrained the appetite for military adventure. In the end, it was clear that private borrowers could go bankrupt but the state would not.

For France, the 18th century was different. There, repeated state bankruptcies forced creditors to suffer cuts in interest rates and repeated extensions of maturities. In 1770, the state defaulted. After its costly involvement in the American War of Independence, the French elite decided to change its ways. But in 1787, the government bailed out investors who had lost money in a speculative share deal.

Paying the bill was more than the French tax system could afford. In the end, the state confiscated private assets to pay its debts, expanding public expectations of what the state could do and heightening social tension. "In short, adherence of the principle of non-default created the French Revolution," he told the Munich Economic Summit.

So in the British case, not reneging on debts was a principle associated with the development of legal security, representative government and modern democracy—lessons taken on board by the founders of the U.S.

In the French case, the state took on too much debt and then tried to pay at any cost. The state lost credibility and, unlike in Britain, no private market developed to distinguish between risks.

On the face of it, the euro zone combines both these cultures of debt. Germany sees itself as the upholder of a set of rules that attempt to enhance governments' credibility, by limiting their borrowings and placing appropriate risk on the shoulders of private-sector investors.

On the other side of the coin are serial defaulters such as Greece, which according to authors Carmen Reinhart and Kenneth Rogoff has spent more than half of its existence since independence in 1829 in a state of default.

The truth is that Germany is a rehabilitated serial offender itself, having defaulted eight times in its relatively short history, according to Ms. Reinhart and Mr. Rogoff. Nonetheless, the clash of debt cultures has thrown obstacles in the path of resolving the crisis, with Germany emphasizing individual national responsibilities and others seeking to spread the debts they took on to other, stronger governments.

His message for the monetary union is that it needs rules—but rules that are interpreted flexibly. He drew some further history lessons for the euro.

Lesson One: Indecision leads to poor choices and policy paralysis.

Lesson Two: Finding a clear answer to a crisis is more difficult when there are conflicts over distribution of wealth and income—as now between northern and southern Europeans.

Lesson Three: Solutions become harder when economic arguments have been used to justify integration. That means when growth falters, the credibility of the project crumbles.

Mr. James's conclusions may not be comfortable for the euro zone.

Its crisis management has been beset by indecision, by barely disguised splits between north and south and a lack of popular enthusiasm for the project beyond its economic justification.

It is moving to a new set of rules, but whether their interpretation will be benignly flexible or destructively rigid remains unclear.

Finally, it is also uncertain whether the bloc's debt dilemma will be resolved on French or English lines. "Europe today should be looking for its 1688, and not for re-enactment of 1789," Mr. James said. "Roast beef, not foie gras."

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